Question

Madison Inc. reported sales of $1,000,000, a debit balance in Accounts Receivable of $80,000, and a credit balance of $5,000 in the Allowance for Doubtful Accounts. Management anticipates bad debt losses of 1% of credit sales. Prepare the end-of-period adjusting entry to record bad debt expense. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Answer:

The adjusting entry is the following

Bad debts expense dr   $10,000

               Allowance for doubtful account $ 10,000

Explanation:

According to the question, the reportes sales are of $ 1,000,000 and management anticipates that bad debt losses of 1% of credit sales.

So the The bad debt expense= 1%× Net credit Sales

Which means that= 1% × $ 1,000,000

= $ 10,000

The $ 10,000 is the allowance for doubtfull account.

This means that the journal entry would be

Bad debts expense dr   $10,000

               Allowance for doubtful account $ 10,000

Answer 2

Answer:

Accounts Receivable  $80,000,

Bad debt losses of 1% of credit sales= 1% * $ 80,000= $ 800

Allowance for Doubtful Accounts $5,000 credit

Bad Debts                                      $ 800 Debit

Allowance for Doubtful Accounts $4,200 credit

Two entries will be required

For recording Bad debts Expense

Bad Debts Expense $ 800 Dr

Allowance for Doubtful Accounts $ 800 credit

Adjusting Entry at year end.

Allowance for Doubtful Accounts $ 800 Debit

Account Receivables                   $ 800 Credit